Corporate Medicine - I told you so
19 July 1997

When the FBI swept through Columbia/HCA's facilities across the USA on 16 July 1997 I collected the subsequent newspaper reports from the USA and also some recently acquired reports and documents describing Kaiser's activities in the USA. I wrote this review in order to drive home the points I had been making for several years. It was a kind of "I told you so" reminder to reemphasize the points I had made before in regard to Tenet/NME, GSI and Columbia/HCA and to raise awareness because of the recent announcement that Sun Healthcare was buying into Australia. It was accompanied by newspaper reports and extracts from court documents. Once again I use examples from Australia to show how vulnerable we are to US corporate practices.

Introduction

Further FBI raids and revelations in the USA
A worldwide problem
A time for realism

Main points from these news reports

Financial Inducements to doctors
Encouraging administrators to inflate their billings
Inflating expense reports
Conducting unneeded tests and fraud in lab work
Hospital purchasing practices
Violating labour laws
Aggressive and inappropriate marketing
False or misleading advertising
Incentive payments for staff and coercive termination of employment
Bare-Knuckled competition
Destruction of whistle blowers
Cost cutting which jeopardised care
Misuse of arbitration systems
All this is a consequence of corporatisation and market competition

Revelations from Australia

Social capital
A time to think again
Successful Sociopathy and corporations
The case of Mayne Nickless
Financial incentives linked to profits in health
Operation Tambo
Sociopathic behaviour and political Mad Cow thinking in Queensland
Problems in the Reserve bank
The case of Hugh Morgan
Public credibility is being stretched too far
Other concerns about the Reserve bank board
Criminals on the Reserve bank board
A breakdown of social control
Appropriate action by the Reserve bank
The role of government

Further FBI raids and revelations in the USA:- There were a record further 35 FBI raids on Columbia/HCA facilities on 16 July 1997. Further searches are predicted. In the US search warrants are authorised instead of subpoenas only when the government has developed "probable cause" to believe that a crime has been committed. So many warrants are unheard of. Reputable newspapers like the New York Times are documenting Columbia/HCA's alleged illegal and dysfunctional practices and the reasons why these occurred. These are exactly the assertions I have made about the corporate forces at work during the last 5 years. They mirror the conclusions I drew after analysing very similar conduct by Tenet/NME. Kaiser, US Healthcare, Charter Hospitals, and many others have all adopted similar business practices. Sun Healthcare has had a meteoric growth rate similar to that of Tenet/NME and Columbia/HCA. There is no reason to believe that its business practices differ significantly from the other corporate giants. It has also been raided by the FBI. Reports strongly suggest that Generale de Sante Internationale in Europe and Mayne Nickless in Australia have adopted the US formula for success. Countries outside the USA have not yet reached the stage where health care facilities are among the common sites for police raids.

A worldwide problem:- The evidence clearly demonstrates the continued unacceptable conduct by the largest and most successful healthcare businesses in the world. It shows that this is consequent on managing humanitarian endeavours as if they were businesses and considering health care to be an industry governed by the corporate marketplace. The deliberate corporatisation of health care and the subjugation of patient care and ethical traditions to the financial priorities of shareholders has been an abysmal failure.

A time for realism:- The time has come for politicians to accept that their simplistic marketplace "reform" processes are based on theories which are not universally applicable across all field of human endeavour. Developed by economic theorists and corporate managers within the marketplace they are limited in perspective. With their overemphasis on selfish financial considerations they are destructive of the forces which drive the social and civic dimensions on which society and the ultimate social well-being of citizens depends.

Financial Inducements to doctors:- Like Tenet/NME, which paid in the region of $1 billion in fraud related settlements, Columbia/HCA staff allege that Columbia/HCA paid physicians to admit more patients.

Tenet Healthcare (at the time called NME) pleaded guilty to this illegal practice in 1994 paying a US $379 million fine. In our own region a Singapore surgeon gave evidence in court that Tenet/NME staff offered him financial inducements, insisting on a contract which may have put pressure on the surgeon to admit patients and carry out unnecessary operations. One of those allegedly insisting on this contract was Michael Ford the vice-president of the international division at the time. None of the persons concerned gave evidence to challenge the surgeon's accusations. When I challenged Tenet/NME about this failure to mount a defense court actions were commenced in an attempt to silence me. Over half of Tenet/NME's US hospitals had pleaded guilty to almost identical practices. Those who allegedly offered these inducements were all subsequently promoted. Michael Focht, the president of the international division and Ford's immediate superior at the time of the alleged events is now COO of Tenet/NME. Focht now boasts publicly about Tenets ethics committee. This committee failed to acknowledge documents and repeated requests by registered mail that they address the ethical implications in this matter.

It is increasingly clear that even though such practices are illegal corporations see nothing wrong in using financial inducements to undermine ethics and induce doctors to disregard their duty of care to patients. Such practices are difficult to detect and social control in corporations is such that businessmen and managers happily break the law when it is profitable to do so. No one speaks out about this. The evidence suggests that the two largest corporations in the world have indulged in this sort of thing. It is clear that these practices are widespread in corporate medicine in the USA. Others must compete.

Columbia/HCA has gone to some lengths to devise strategies to accomplish their goal of rewarding doctors for referring patients. They have used loopholes in the laws which prohibit such practices. The New York Times states that the government is studying

"whether doctors who invest in Columbia hospitals and regional health systems violate the law by referring patients to outpatient services, like home care, in which they have investments."

Large US corporations including Columbia and Tenet have bought up doctors practices or formed business management associations with them. This places corporations in a position where they can exert financial and social pressure on doctors to use corporate hospitals and pathology services, and practice medicine the corporate way. Companies can encourage under or overservicing, depending on whether they are managed care companies or for profit hospital groups. It is significant that several Australian companies including Mayne Nickless and the Alpha/Sun group are buying up general practices and setting up fast food style medical services. This approach is validated in corporate jargon by talking of vertical and horizontal integration and "one stop" medicine.

Encouraging administrators to inflate their billings:- Employees responsible for billing were given "focus codes" to encourage them to maximise billing. Categorising medical services is a difficult if not impossible task and policing compliance is even more difficult. A single payment item can involve a very different volume of work. Before medical insurance became popular doctors tailored their bills to the service given and the ability of the patient to pay. With the advent of medical insurance doctors initially sought out items which suitably represented the service provided rather than a higher paid item which fitted and which they were entitled to charge for. I well remember these early days. Some aggressive insurance companies started very strictly applying the letter of the regulations in order to reject doctors bills on technicalities. Like other doctors I started charging these companies the full item regardless of the amount of work actually involved. In the USA corporations have extended this to the extent that corporate bills are fraudulently upgraded to items of service which were never provided. This is called upcoding and is illegal. This is the logical progression expected when market pressures are applied to humanitarian endeavours which cannot be categorised or policed. This is one of the matters being investigated by the FBI

Inflating expense reports:- These expense reports generate hundreds of millions of dollars for US healthcare companies. This is simply an extension of the practice of fraudulently upcoding. The government is reported to be investigating whether Columbia/HCA "fraudulently inflated their costs in reports to the government for the purposes of raising compensation" It seems that HCA staff were well trained in this regard. HCA was found to be similarly improperly claiming expenses in 1993 before it joined Columbia. HCA staff now hold senior positions in Columbia.

Conducting unneeded tests and fraud in lab work:- Officials are said to be investigating whether doctors were manipulated into ordering medically unnecessary tests. Unneeded tests were described by witnesses in Tenet hospitals. Such practices, including offering incentives are consequent on hospitals owning pathology laboratories as well as general practices and hospitals. This is the proven formula for success in the USA. Such ownership places companies in a position where they can exert pressure on doctors to practice medicine the corporate way. They can do this by a variety of undocumented social strategies. In the absence of written documentation it is very difficult to prove. Several pathology providers including Corning Lab Services and SmithKline Beecham (US $325 million) have paid massive fines in the USA for fraudulent laboratory practices. Columbia/HCA is now being investigated.

It is significant that Mayne Nickless, Alpha Healthcare and probably others in Australia are adopting the practice of owning doctors practices, hospitals and pathology services. Sun Healthcare may well try to exert pressure on Alpha to follow these successful US practices if it receives approval from FIRB to become the major shareholder in Alpha. US corporate businessmen clearly consider such practices as legitimate business strategy.

Hospital purchasing practices:- Hospital officials have testified that financial enticements and jobs were offered to hospital officials in hospitals Columbia/HCA planned to purchase. This was illegal.

Violating labour laws:- A Washington judge found that a Columbia/HCA hospital engaged in unfair labour practices through a series of threats and retaliatory actions. Nurses were dismissed, denied promotions and given unpleasant shifts. The hospital retaliated against nurses who gave testimony to national bodies. David Vandewater one of Columbia/HCA's top three executives personally threatened employees. The judge found that the actions of Columbia/HCA were of such a degree that "they cannot be corrected by conventional remedies -- ".

Aggressive and inappropriate marketing:- These include vicious practices such as vilifying competitors and placing billboards which asked "Why Stop Here?" outside competing hospitals. Vast sums are spent on marketing. The New York Times makes some of the points I am making very well when analysing Columbia's phenomenal success.

At the heart of that achievement is an aggressively competitive vision of medical care, one that applies the practices of corporate America to an industry still dominated by not-for-profit institutions.

These practices include not only in-your-face marketing, but hospital takeovers, cost-cutting and layoffs, volume purchasing, complex pricing strategies and large monetary incentives for managers who meet financial targets.

The newspaper indicates that Columbia/HCA's strategies "are often copied". If they were not then others could not compete.

False or misleading advertising:- Columbia/HCA claims in its marketing that its costs are lower and its standards higher than competitors. In fact its prices are 8% higher and the limited evidence available fails to confirm the claim that standards are higher. Doctors and nurses "question whether care is being compromised".

In the USA managed care companies negotiate discounts. Individuals arranging their own insurance do not have this competitive advantage. The New York Times found that Columbia's prices were 35% higher than the industry norm. Insured patients were forced to pay the excess out of their own pockets.

There have also been concerns that corporate advertisements misuse accreditation status in their claims. Processes which reflect financial success are claimed to be measures of patient care. It is also claimed that accreditation bodies are literally in the pockets of the big corporations. Attempts are being made by Congress to make accreditation bodies independent and accountable to the community rather than to corporations.

Until recently advertising has been considered to be unethical in the health arena. The consequence of abandoning this ethical principle is only too apparent in the USA. Both Tenet/NME and Columbia/HCA have indicated that marketing is their most important activity. The consequences are now apparent.

Incentive payments for staff linked to profits and termination of employment if profit goals are not achieved:- Tenet Healthcare used both practices in order to induce hundreds of staff to abuse the rights of patients and defraud their insurers of billions of dollars. My analysis of their documents indicated that such practices were the key to the success of their fraudulent practices. Such practices are now recognised by US corporations as the formula for financial success and most if not all for profit corporations use these strategies.

I have strongly urged our health authorities to deny hospital licenses to corporations which employ such practices. One state director general of health replied indicating that these were normal business practices and so acceptable. He did not feel that they would be detrimental. The New York Times shares my concerns about such practices and refers specifically to Columbia/HCA's use of these practices.

The company intensely pressures managers to raise profits by cutting costs and increasing patient revenues. Administrators have been able to almost double their salaries through bonuses based almost entirely on meeting financial targets. and

Columbia administrators who meet their profit goals win big bonuses. Those who don't, forgo their bonuses -- and sometimes lose their jobs. In 1995, 25 percent of Columbia's administrators won bonuses of at least 80 percent of their salaries, according to the Advisory Board, -----.

and

Company records show that at least 90 percent of the 1995 bonuses were based on financial performance. - - - - - - - - - -Every Columbia hospital has such programs, - - - - -

and

The message was very clear that either you would achieve these goals or they would find someone who would achieve those goals, - - -

and

"You have a highly decentralized system that grants a lot of autonomy to local and regional officers, and those officers have very significant monetary incentives tied to the net profitability of their markets," Leifer (a former senior vice-president) said. "I feel that this could be a prescription for disaster, because it can create tremendous temptation to make budget at times by inappropriate action."

In Australia the two senior Mayne Nickless executives in the health care chain of command have been offered massive incentives linked to profits. I do not know how many other Australian hospital corporations offer similar incentives.

Bare-Knuckled competition:- I have argued strongly that aggressive business practices are destructive for the provision of humanitarian services, particularly health services. Critics consider Columbia/HCA unnecessarily ruthless. It sues communities which reject its attempts to acquire hospitals, refuses to sell closed hospitals to competitors in towns where it controls the market and keeps skeleton hospitals open to prevent competitors from acquiring licenses. None of this is in the interests of competition nor of the health of the community. As the company claims in its advertisements this is health care that "has never worked like this before."

Destruction of whistle blowers:- In the USA corporate health whistleblowers have been ruthlessly pursued and their careers ruined. Corporations threaten their critics and use their wealth and legal might to take out lawsuits to silence critics. Leifer indicates that few administrators would speak out for fear of reprisal. Columbia/HCA even contacted Leifer and threatened him with a court action.

Cost cutting which jeopardised care:- Allegations suggest that Columbia/HCA reduced costs by cutting staff and by employing staff who were not properly trained. Nursing groups claim that working conditions are intolerable and that patient care is suffering. In one hospital in Indianapolis complaints about staffing problems by doctors and nurses were ignored. A state inspection found widespread problems. The hospital was in disarray because of inadequate staffing and it is clear that patients lives were endangered. Columbia was fined US $25,000. The New York Times reports that

concerns about the adequacy of nursing care and the competence of support staff emerged in interviews with doctors, nurses, patients and volunteers at Columbia hospitals.

Dr. Alan Lansing, a leading heart surgeon from Louisville was distressed when his nursing team were decimated and his remonstrations were ignored with claims that care was not compromised. He said

I think the people who decided it didn't know much about how hospitals run or how staffs function," Lansing said. "These people don't understand about quality of care. And they don't want to listen to those of us who do."

Kaiser, primarily a managed care company has been more blatant than Columbia/HCA in its refusal to provide care to patients and in its disregard for standards of care as it cut staff in its hospitals. A damning report in Texas found that it had repeatedly refused patients treatment when they were entitled to it. Kaiser was fined US $1 million. It attempted to suppress publication of this damning report on a legal pretext.

In California a state review found that two Kaiser Hospitals gave inadequate care and endangered patients lives. A major factor was deficiencies in staffing. The pharmacy lost two thirds of its staff and were unable to provide a service. Nursing staff and the unions had complained repeatedly and in vain about these problems. Kaiser were forced to close these hospitals. There have now been further complaints about emergency room delays and improper care in other Kaiser hospitals in California. These are also being investigated.

Misuse of arbitration systems:- In this instance Kaiser Permanente. Kaiser runs its own "neutral" arbitration system to mediate disputes about care, but it does not disclose in its advertisement that this is administered by Kaiser employees. A judge in California found that there was ample evidence that Kaiser did not live up to its agreement for a fair arbitration system. In one case Kaiser delayed the arbitration process well beyond the times specified in the agreement until the patient with cancer had died because they would then have to pay only 50% of the damages.

All this is a consequence of corporatisation and market competition:- I rest my case about what has happened to medicine in the USA. Columbia/HCA and Tenet Healthcare are the two leading giants in US healthcare. Where they lead other US corporations follow and where the US leads Australia blindly follows.

Americans are not inherently different from Australians. I do not believe that I need continue to argue that what we are seeing is a direct consequence of the corporatisation of medicine and attempts to drive reform of health care using competitive market forces. To claim otherwise is to be irrational. Corporations are responsible to shareholders and not to patients and that such a situation would arise was predictable. It is incomprehensible that Australia continues along the same path.

A constant feature of psychopathic or sociopathic behaviour is the total disregard of the consequences of ones actions for others. I have argued that in competitive health care persons with sociopathic tendencies will succeed. Corporations cultivate and bring out these facets of human behaviour by offering incentives and by firing those who don't meet financial objectives. Tenet/NME even instructed its administrators to "look for a shark" when interviewing prospective employees. People with sociopathic tendencies rise to the top of corporations. It is clear that people who look the other way rather than face the consequences of their actions were in charge of Tenet/NME, Columbia/HCA and Kaiser. We must ask how Sun Healthcare acquired the funds to expand from 7 to over 400 facilities in only 8 years. Is it any different?

My criticisms have been met with assertions that Australia is different and that these things could not happen here. I believe that there is ample evidence that this is not so. Australia is adopting the same economic rationalist principles and is applying them to health. Our health minister has indicated that he considers health to be an industry and that he intends to ensure that market forces operate. He makes the same claims to a "level playing field" which have characterised US thought processes. He has urged doctors to become the allies of the big companies, and is angry that they have resisted.

Social capital:- Eva Cox has elegantly argued that an excessive emphasis on economic capital is destructive of social capital (1995 Boyer lectures). The situation revealed in the US health system provides ample support for this. Cox has argued that destruction of social capital diminishes economic capital because of its impact on society. An accumulation of social capital enhances society's effectiveness. This is associated with increased economic capital.

A time to think again:- The time has come for a major rethink before the next federal election. We must seek to balance competitive economic selfishness with stronger cooperative processes, processes which enhance our social selves and sufficiently emphasise humanitarian and ethical issues. The loud claims to ethics and care made by businessmen as they "aggressively market" their "medical products" for the benefit of shareholders are hollow indeed. It is time to abandon the use of words like "radical market reform" and "aggressive marketing". These are the words of religious cult movements not of rational people, nor of a scientific discipline. It is imperative that we examine broadly based solutions which use theories to inform decisions, not determine them. Trials of cooperative systems of care should be used to progress health reform in a step by step fashion.

Successful Sociopathy and corporations:- Robertson et al (Medical J. of Australia 1996) describe a pathological condition which they call "successful sociopathy". They suggest that many successful businessmen show some of the features of this condition. I have indicated in previous correspondence that corporatisation and globalisation threaten the processes of social control which constrain such people and ensure that they do not rise to positions of influence. Instead corporatisation supports and nurtures such persons. Corporations and consequently successful sociopaths have become excessively powerful, very credible and quite ruthless in their exploitation of this power.

The case of Mayne Nickless:- I have previously commented on the terms used and the strategies employed by Mayne Nickless board members in order to avoid confronting the criminal nature of their price fixing racket and its consequences. They spoke of "orderly marketing arrangements" and responded aggressively to critics.

Financial incentives linked to profits in health:- Mayne Nickless has offered the two senior executives in its health care chain of command massive bonuses linked directly to corporate profits.

Operation Tambo:- An investigation in NSW in 1991-2 found that corrupt police were selling confidential information obtained during the course of their duties to business employees including banks. It appears that senior board members turned a blind eye to this practice, giving tacit approval and positive reinforcement while pretending to be unaware of what was happening. This is remarkably similar to the behaviour of senior staff in US medical corporations.

Sociopathic behaviour and political Mad Cow thinking in Queensland:- Recent news reports indicate that both BHP and Mount Isa Mines blatantly disregarded their contracted environmental obligations in Queensland. Queensland government ignored the desecration of our environment and removed those government officials who sought to enforce the contracts. They did so in order to entice these corporations to open new coal mines in Queensland. They believed that they could obtain political mileage from this. The corporate breeches of contract were simply overlooked. What prospect is there that they will fulfill their contracts this time?

Problems in the Reserve bank:- This inappropriately close relationship between politicians and suspect businessmen is apparent at the highest level in the land. The situation revealed in the Reserve bank by a report in the Sydney Morning Herald on 19 July 1997 is alarming.

The case of Hugh Morgan:- The article addresses the question of a possible conflict of interest by a board member Hugh Morgan. It seems that Mr. Morgan's past history includes concerns that his company WMC had trespassed on mining leases and that it had then given information which might have been misleading. Morgan was apparently linked to disastrous business decisions in Canada in the 1980's. In order to escape the odium from these disastrous decisions WMC inappropriately took to the courts and pursued innocent directors of the Canadian company. The assessment by the judge was scathing and he questioned Morgan's credibility as a witness. The judge indicated that Morgan had taken this action because of embarrassment in confronting his business failure and out of sheer revenge. The newspaper indicates that the ultraconservative Morgan is a founding member of the right wing H.R. Nichols society and a close friend of the treasurer. The response of WMC was to threaten the Sydney Morning Herald with legal action, exactly the strategy adopted by large business groups trying to silence legitimate criticism of criminal conduct.

Public credibility is being stretched too far:- The public is numbed with disclosures of political conflicts of interests, rorting of the system by politicians, police corruption in almost every state and judges who expose themselves to improper influence by public sexual exhibitionism. Police at the highest level have protected such people. They sell their knowledge to businessmen who turn it to profit. Government appointed anticorruption bodies turn a blind eye to judicial misconduct and permit such judges to continue to work in a judicial capacity.

In spite of all this Mr. Morgan, the governor of the reserve bank and the government expect the public to believe that the massive coincident forward selling of gold which saved WMC millions of dollars was in no way related to knowledge obtained by Morgan while a member of the board. We are expected to believe that the reserve bank is independent of the government when at the same time the governor of the bank assures us that the government ensures that all members of the board are of "high ethical standards".

Other concerns about the Reserve bank board:- A picture in the SMH reveals that Solomon Lew from Coles Myer is a member of the board of the Reserve bank. The board of Coles Myer has been associated with a scandal and an outcry by shareholders. There have been allegations of criminal activity with court actions and criminal convictions of staff. Lew did not resign from the Reserve bank and other board members did not insist that he do so.

Criminals on the Reserve bank board:- Worse still the SMH reveals that Brian Quinn from Coles Myer was also a member of the board before he went to prison. Quinn held a very senior position in Coles Myer which attracted a million dollar salary. He felt that he was under-rewarded and was acting perfectly appropriately when he helped himself to a further $4.5 million. He was genuinely indignant that he was sent to prison for doing so, a strong pointer to a sociopathic personality. Quinn helped himself to $4.5 million under the nose of the chairman of Coles Myer, who now manages the financial affairs of the Reserve bank. It seems clear that the governor's claim that the government ensures that all members are of "high ethical standards" is false. Is the governor deliberately misinforming the public and if so is this conduct acceptable in the governor? Could this be selective blindness to information in his possession; a manifestation of sociopathic conduct?

A breakdown of social control:- The situation which is revealed indicates a major breakdown in the normal processes of interaction between individuals in social settings and a consequent loss of social control. This is exactly the situation which I have indicated would be expected from corporatisation and the blind application of economic rationalist market theories. The dysfunctional situation revealed in Mayne Nickless (see press reports of witnesses' statements and Prof Fels' comments) during its 1994 conviction for price fixing seems to be mirrored at the highest financial level in the land.

Appropriate action by the Reserve bank:- The reserve bank has a prime social responsibility to citizens not to the rights of businessmen who are associated in any way with shady dealings. In a civil society such persons would see themselves through the eyes of other members of society. They would resign forthwith. The chairmen who had mislead the public would step aside.

The role of government:- I respectfully suggest that it is not the role of government to subjugate all of society to the dictates of the market. It is the responsibility of government to structure society in such a way that the different dimensions of human activity complement each other in a functional way. Economic understanding should inform our humanitarian endeavours. These endeavours should interact with the market in ways which are functional for the services which they provide.

Similarly, if the adverse impact of corporatisation and globalisation is to be avoided and the potential benefits realised then the social dimension must inform and be part of the marketplace. It is because there is no social dimension and no societal odium within the business and political communities that organisations which have exploited fellow citizens, desecrated our environment and indulged in criminal conduct are supported by the business community, the banks and politicians. People who are able to disregard the consequences of their actions for others rise to the top. Their conduct is legitimised by economic rationalist theories which value managers who are seen to be "lean and mean".

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Put on www 31 March 1998 -Last modified October 1998 J.M. Wynne
Minor formatting August 2003